daimler-ir-interimreport-q1-2020

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C | INTERIM MANAGEMENT REPORT 23tions or findings, even if such determinations or findings arenot within the scope of such authority’s responsibility or jurisdiction.Thus, a negative determination or finding in one proceeding,such as the fine notice issued by the Stuttgart districtattorney’s office, carries the risk of being able to have anadverse effect on other proceedings, also potentially leadingto new or expanded investigations or proceedings, includinglawsuits.In addition, Daimler’s ability to defend itself in proceedingscould be impaired by the fine notice issued by the Stuttgartdistrict attorney’s office as well as other unfavorable findings,results or developments in any of the information requests,inquiries, investigations, administrative orders, legal actionsand/or proceedings discussed above.Risks from legal proceedings in connection with diesel exhaustgas emissions – court proceedingsA consumer class-action lawsuit is pending in the UnitedStates in which it is alleged that Daimler AG and MBUSA conspiredwith Robert Bosch LLC and Robert Bosch GmbH (collectively,“Bosch”) to deceive US regulators and consumers. Aseparate lawsuit was filed in January 2019 by the State of Arizonaalleging that Daimler AG and MBUSA deliberatelydeceived consumers in connection with the advertising ofMercedes-Benz diesel vehicles. Consumer class-action lawsuitscontaining similar allegations were filed against DaimlerAG and other companies of the Group in Canada in April 2016,and against Daimler AG in Israel in February 2019. A similarclass action was filed in the United States in July 2017, butin December 2017, the parties stipulated to dismiss that lawsuitwithout prejudice. It may be filed again under specificconditions.Furthermore, class actions have been filed in the United Statesand Canada alleging anticompetitive behavior relating to vehicletechnology, costs, suppliers, markets, and other competitiveattributes, including diesel emissions control technology.A securities class action lawsuit is pending in the United Stateson behalf of investors in Daimler AG American DepositaryReceipts which alleges that the defendants made materiallyfalse and misleading statements about diesel emissions inMercedes-Benz vehicles. Daimler AG and the respective otheraffected companies of the Group regard these lawsuits asbeing without merit and will defend against the claims.In Germany, a multitude of lawsuits by customers allegingclaims under warranty and/or tort laws as well as lawsuits byinvestors alleging the violation of disclosure requirements arepending. In this context, motions to initiate a model proceedingin accordance with the Act on Model Proceedings in CapitalMarkets Disputes (KapMuG) have been filed by investors aswell as by Daimler AG. Currently, no model proceeding is pending.Daimler AG also regards these lawsuits as being withoutmerit and will defend against the claims.If court proceedings have an unfavorable outcome for Daimler,this could result in significant damages and punitive damagespayments, remedial works or other cost-intensive measures.Court proceedings can in part also have an adverse effect onthe reputation of the Group.Furthermore, Daimler’s ability to defend itself in the court proceedingscould be impaired by unfavorable findings, results ordevelopments in any of the governmental or other court proceedingsdiscussed above, in particular the fine notice issuedby the Stuttgart district attorney’s office.Risks from other legal proceedingsFollowing the settlement decision by the European Commissionadopted on July 19, 2016 concluding the trucks antitrustproceedings, Daimler AG and Daimler Truck AG are facing customers’claims for damages to a considerable degree. Respectivelegal actions, class actions and other forms of legalredress have been initiated in various states in and outside ofEurope and should further be expected. Daimler takes appropriatelegal remedies to defend itself.As legal proceedings are fraught with a large degree of uncertainty,it is possible that after their final resolution, some of theprovisions we have recognized for them could prove to beinsufficient. As a result, substantial additional expendituresmay arise. This also applies to legal proceedings for which theGroup has seen no requirement to recognize a provision.It cannot be ruled out that the regulatory risks and risks fromlegal proceedings discussed above individually or in the aggregatemay materially adversely impact our profitability andfinancial position.Although the final result of any such litigation may influencethe Group’s earnings and cash flows in any particular period,Daimler believes that any resulting obligations are unlikely tohave a sustained effect on the Group’s financial position.Further information on legal proceedings is provided inE Note 30 of the Notes to the Consolidated Financial Statementsof the Annual Report 2019.
24 C | INTERIM MANAGEMENT REPORTOutlookAfter the world economy slipped into recession in the firstquarter, its development will continue to be dominated by thecorona crisis during the rest of the year. The decisive factorswill be when the pandemic will be under control worldwide,how long economic activity is reduced until then, and whichpattern of recovery will occur afterwards. From today’s perspective,a significant decline in global economic output mustbe anticipated for the year 2020 as a whole.The Chinese economy was the first of the major economies tosuffer a massive slump, but now appears to be the first toimprove. Nevertheless, it is to be expected that China willachieve only slight growth this year, instead of the originallyexpected 5 to 6%. For the economy of the European MonetaryUnion (EMU), a deep recession must be expected due to therestrictive measures taken to combat the COVID-19 pandemic.Although hardly any exact economic data is yet available thatwould allow the extent of the economic decline to be quantifiedmore precisely, most analysts currently expect a significantdecline in gross domestic product (GDP). Current expectationsare that none of the larger individual economies of theEMU will be able to escape this fall in GDP. The decline in economicoutput is likely to be especially pronounced in countriesvery severely affected by the pandemic, such as Italy andSpain. For the US economy, the latest labor-market figures inparticular provided an important indication of the economicimpact of the corona crisis. Private consumption there is likelyto be severely affected even after the possible containment ofthe pandemic. Due to its high dependence on private consumption,the US economy is also expected to suffer a significantGDP decline.The economies of major emerging nations are also likely to bevery weak due to the impact of the COVID-19 pandemic. Formajor commodity exporters such as Russia and Brazil, the verylow oil price, which is likely to remain very low for the rest ofthe year, will have an additional negative effect. A decline ineconomic output is therefore expected in both Eastern Europeand South America.Worldwide demand for cars is likely to be severely affected bythe corona crisis in most of the sales regions important forDaimler. Although many markets should gradually stabilize asthe year progresses, we still anticipate a significant decreasein the global car market.The European market is likely to contract, with a significantdecline in demand anticipated in Western Europe. This willprobably affect all major individual markets, each with significantdecreases. Significant contraction of the car market inEastern Europe is also to be expected.A significant decline in demand is expected in the US marketfor cars and light trucks. Among the major sales markets,China is likely to be the first to reach a moderate recoverypath. However, it will probably not be able to fully offset themassive losses in the first quarter, so significant market contractionis expected for the year as a whole.In the context of increasing macroeconomic challenges anduncertainties, primarily due to the coronavirus, we anticipateweaker or negative growth rates for demand for vans in severalmarkets and regions. In the EU30 region (European Union,United Kingdom, Switzerland and Norway), we anticipate a significantdrop in demand in the combined segment of midsizeand large vans and in the market for small vans in the full year.In the United States, demand for large vans is also likely to besignificantly lower than in the previous year. We expect themarket volume for large vans in Latin America to be slightlylower than prior-year levels and for midsize vans in China toremain at the prior-year level.According to current assessments, major truck marketswill develop very unfavorably this year as a result of the coronacrisis.In the North American market, we assume that demand forheavy-duty trucks (class 8) will decrease significantly. In theEU30 region (European Union, United Kingdom, Norway andSwitzerland), we also expect sales of heavy trucks to declinesignificantly. The same applies to demand for heavy trucks inBrazil and Japan.
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